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AAMC Joins Amicus Brief on APA Case

October 31, 2014—The AAMC Oct. 16 joined the American Hospital Association (AHA) and the Healthcare Financial Management Association (HFMA) in an amicus brief submitted to the U.S. Supreme Court regarding Perez v. Mortgage Bankers. The case that could have a wide-ranging impact on when a federal agency must engage in notice-and-comment rulemaking under the Administrative Procedure Act (APA, P.L. 79–404) before it can significantly alter an interpretive rule.

The brief argues that when an interpretive rule “imposes real change to regulated entities,” an agency must engage in rulemaking. The associations cite an example of a complex change detailing the recent reversal by the Internal Revenue Services (IRS) on what constitutes hospitals’ “community benefit.”

For decades, nonprofit hospitals were able to treat medical research activities as a “community benefit” when seeking or confirming tax-exempt status, regardless of whether funded by restricted or unrestricted grants. However, by revising an instruction to a tax form in 2013, the IRS changed the worksheet instructions for Schedule H (Form 990) that requires hospitals to count grant funding as direct offsetting revenue when calculating the amount of community benefit provided.

This seemingly minor change results in the appearance on Schedule H that hospitals are providing less community benefit in 2014, although the only change is in the way that hospitals must calculate the community benefit.

The brief argues that when the IRS revises these rules, it is “changing how tax law operates … doing much more than ‘simply explaining’ that it ‘has corrected or revised its previous legal interpretation of a regulation in some significant way,” and suggests using the notice and comment rulemaking process instead.